Diageo cuts sales forecast amid China and US struggles and succession uncertainty

Diageo, the global spirits giant behind Guinness and Johnnie Walker, has revised down its full-year sales forecast, despite reporting a better than anticipated first-quarter performance. The company now expects organic net sales growth to remain flat or decline slightly this year, a shift from the prior target of matching last year’s level. The forecast for organic operating profit growth has also been trimmed to a range of low to mid single digits.

This downgrading of guidance follows headwinds from the Chinese white spirits market, particularly the baijiu sector, and a weaker than expected consumer environment in the United States. Diageo is navigating a period marked by shifts in post-pandemic consumer demand, subdued performance in key territories, persistent changes in drinking habits, and ongoing questions surrounding its strategic direction. Investor sentiment appears to be impacted, with share prices having fallen over 30 percent since the start of the year. Shares closed 6.5 percent down at £16.80, with analysts noting the lack of news around management succession as an additional source of uncertainty.

Interim chief executive Nik Jhangiani, who stepped up after Debra Crew’s sudden departure in July, said, “We are not satisfied with our current performance and are focused on what we can manage and control: acting with speed to drive efficiencies, prioritising investment and adapting more quickly to an evolving consumer environment.” Analysts have expressed concern over the abrupt cut in guidance after only one quarter, with some suggesting that improvements in expectations management may have been less substantial than previously thought.

In terms of regional highlights, Diageo’s results present a mixed picture. The Asia Pacific division reported a 7.5 percent sales decline, largely due to falling demand for baijiu in Greater China. North American sales fell by 2.7 percent as the group contended with challenging conditions and heightened competition, especially in the tequila segment. Diageo’s foray into premium tequila included the $1 billion acquisition of Casamigos in 2017, but even this has not been enough to stave off industry-wide sluggishness in the US market.

There were some bright spots in other regions. Europe delivered a 3.5 percent sales increase, bolstered by robust demand for Guinness, while Turkey contributed healthy Johnnie Walker sales. In Latin America and the Caribbean, net sales climbed by nearly 11 percent, fuelled by strong demand in Brazil for Johnnie Walker and ready-to-drink products such as Smirnoff Ice. Africa also saw an 8.9 percent rise in sales.

Diageo is under mounting pressure to reduce its debt burden, which stands close to $22 billion, and to cut operating costs. The company recently raised its cost-savings target to $625 million over three years and is considering asset disposals to strengthen its balance sheet. UBS analysts have suggested a sum-of-the-parts valuation may become more relevant as Diageo faces intensified activist pressures over the coming year. As the search for a permanent chief executive continues, the group’s leadership faces the critical decision of whether its future lies in its vast portfolio or in a more focused strategy centred on fewer powerhouse brands.